Inherited IRA from Marital Trust
Client’s father passed away in 2015 and left IRA to step-mother through Marital Trust. Trust was a pass-through trust and step-mother was taking RMDs calculated from her LE in the Single Life Table, recalculated annually. The step-mother was age 82 in 2016 and age 89 in 2023 when she passed away. The client inherited IRA and we are trying to calculate RMD for 2024 and beyond. It is my interpretation that the client is a successor and would be subject to the 10-year rule, though the 2024 RMD has been waived. From Kitces…’The successor beneficiary continues annual RMDS (same calculation as if Original Beneficiary were still alive AND the 10-year rule begins to apply.’
Based on the above, the client would continue the step-mother’s annual RMDs and thus the LE divisor would be 5.7 in 2024, 5.3 in 2025, and so on, recalculated annually, until the 10-year rule applies in 2033.
Do you agree with our assessment? Thanks!
Thus if the orginal bene was still alive, she would be age 90 in 2024. The inherited IRA would need to be fully withdrawn by 2033 BUT the LE divisor would continue to go down. So the 2025 RMD divisor would be 5.3, or ~19% of the inherited IRA.
Permalink Submitted by Alan - IRA critic on Wed, 2024-10-02 19:01
Close.
But after the step mother passes, the recalculation ends as it only applies to living spouses. 6.1 is the correct divisor for 2023, and then annual 1.0 reductions begin. Therefore the waived 2024 RMD divisor would have been 5.1, then 4.1 in 2025. These reductions will drain the inherited IRA well before the 10 year rule deadline in 2033.
Successor beneficiary is also responsible for completing the 2023 year of death RMD of step mother if it had not been completed. The new deadline for that is 12/31/2024. With only 5 years left, perhaps a 2024 distribution should be taken to spread the taxes despite the 2024 RMD being waived. The following paragraph is copied from the final Regs which addresses the divisors:
“However, as an exception to these general rules, if the employee’s spouse is the employee’s sole beneficiary, then the applicable denominator during the spouse’s lifetime is the spouse’s life expectancy (which reflects an annual recalculation in accordance with section 401(a)(9)(D)). The final regulations clarify that in this case, for calendar years after the calendar year in which the spouse died, in determining the required minimum distribution to the spouse’s beneficiary, the applicable denominator is the spouse’s life expectancy calculated using the spouse’s age as of the spouse’s birthday in the calendar year in which the spouse died, reduced by one for each subsequent calendar year.”
Permalink Submitted by John Hill on Thu, 2024-10-03 10:20
Thank you